The financial services brand takes over the title sponsorship from Panasonic.
In recent years, Nationwide has been best known for its sponsorship of the Football League.
However, it lost out to Coke earlier this year when the drinks giant snatched its long-term agreement with a reported £15m deal.
Nationwide has signed a four-year deal with the Mercury Prize and will launch a series of co-branded initiatives. These include the Nationwide Mercury Art Competition, which will give students at art colleges and universities the chance to design the cover for the 2005 Nationwide Mercury Prize compilation CD.